Home Buying Process

The Mortgage Process Part I

Objectives

• Explain the Loan Application Process

• Identify Items Listed on the Good Faith Estimate

• Identify Items Listed on the Truth-in-Lending Disclosure

Pre-Qualification vs. Pre-Approval

Pre-Qualification • An informal way a financial institution can

tell you the amount you can borrow to finance or refinance a house.

Pre-Approval• A commitment from the lender to lend you

the money.

Loan Application Process

• Meet with a loan officer.– Pre-qualify, if needed.– Voice concerns and ask questions.– Learn about loan options.

• Possibly complete a loan application for Pre-Approval.

Preparing for the Initial Meeting

• List of questions

• Documents/Information needed for loan application– Refer to the Application Checklist Work

Sheet

• 1003 Loan Application– Will be provided by the lender

Real Estate Settlement Procedures Act (RESPA)

• Mandates lenders to fully disclose an estimate of:– All closing costs– Lender servicing– Escrow account practices– Business relationships between closing

service providers and other parties to the transaction

Lenders Are Required To Provide:

• Good Faith Estimate

• Truth In Lending Disclosure

• “Buying Your Home” Booklet

Good Faith Estimate

• Outlines the costs for which the applicant is responsible at closing.

• Must be issued within 48 hours of the time the application is completed.

• Should be the most accurate quote possible. Some lenders purposely under quote the costs to encourage the buyer to take the loan.

Good Faith Estimate

Loan Application Origination

or Processing Fee (Line 801)

• Fee that covers the expenses of preparing mortgage documents, legal service, borrower credit investigation, notary charges, appraisal fee and any other fees.

Good Faith Estimate

Discount Points (Line 802)

• 1 point=1% of mortgage value.

$93,380 mortgage = $933.80• Points are interest paid up front and can be

negotiable depending on the loan product.

• Points are a fee to cover the costs of originating a loan or a way to buy down the interest rate of a mortgage loan.

Good Faith Estimate

Appraisal Fee (Line 803)• Fee for an independent appraiser to determine

the market value of a house.

Title Examination and Title Insurance (Line 1100)• Fee to guarantee the title to be good.

Attorney’s Fee (Line 1107)• Fee for legal advice during the various stages of

buying.

Good Faith Estimate

Deed Recording Fee (Line 1200)• County clerk’s office fee to legally record your

deed.

Survey (Line 1300)• Determines the precise legal boundary lines of a

property, location of improvements, easements, rights of way, encroachments and other physical features.

Good Faith Estimate

Prepaid Property Taxes (Line 1004)• 1 to 6 months of the property taxes deposited

into an escrow account.

Unpaid Special Assessments • Any assessment for streets, sidewalks, sewers,

etc. that are levied or pending against the property.

Good Faith Estimate

Estimate of your loan expenses• Use to compare loan options.• HUD-1 = Itemized list of all expenses received

at closing.• Good Faith Estimate and HUD-1should be

comparable.

If NOT comparable:• Ask questions.• Close at a later date.

Truth-In-Lending

• Requires lenders to fully disclose to the consumer all the terms and conditions of the loan

• Most important document in the loan process

Truth-In-Lending

• Largest single determinant of the cost of your loan • Variances of ¼% or more

Annual Percentage Rate

• If a lender promises a lower-than-market interest rate, the difference may be made up through other financing charges.

Principal Payment APR Total Interest

Total Loan Value

$100,000 $599.55 6.00% $115,838 $215,838

Principal Payment APR Total Interest

Total Loan Value

$100,000 $615.72 6.25% $121,659 $221,659

Difference: $5,821

Truth-In-Lending

Annual Percentage Rate (APR)• The APR is a measure of the cost of your loan

expressed as a yearly percentage rate.• APR may differ from what your loan officer

disclosed.• APR includes all fees and costs associated with

the loan. • It is normal to see a slight difference because of

the normal costs of the loan. • If the APR is different from the original quoted

interest rate, do not hesitate to ask questions.

Truth-In-Lending

• Total dollar amount the credit will cost. • Includes all fees and costs associated with the loan.

Truth-In-Lending

• The amount of credit provided to you or on your behalf.

Truth-In-Lending

• The amount you will have paid after making all payments as scheduled.

Truth-In-Lending

Schedule of Payments

• States the exact dates of your first and last payments.

• States when a payment is considered late.

• States the total number of monthly payments.

Truth-In-Lending

Penalty for Late Payment

• Lender may offer a “grace period.”

• Late fees vary with lenders.

• 2 to 5% of the monthly payment is a common penalty.

Truth-In-Lending

Prepayment Penalties

• Fee if loan is paid off early.

• Not customary in special, government-insured or conventional loans.

• Common in sub-prime lending. – Take caution on loans with this penalty.

Truth-In-Lending

“Buying Your Home” Booklet

• Provides unbiased information on topics such as how to choose the best mortgage and how to negotiate during the home buying process.

• Available at HUD website: http://www.hud.gov/offices/hsg/sfh/res/stcosts.pdf

Summary

• Explained the Loan Application Process

• Identified Items Listed on the Good Faith Estimate

• Identified Items Listed on the Truth-in-Lending Disclosure